Climate risks

The Climate Change Risk Policy of Iren Group carefully analyses and regulates the risk factors, both physical and transitional, the strategies towards these factors (exclusion, acceptance and management) and the guidelines for reporting, aimed at guaranteeing information transparency to all stakeholders. The Climate Change Risk Commission – made up of the Chief Risk Management Officer, the Chief Corporate Social Responsibility and Local Committees Officer, the CFO and the Business Units Chief Officers – periodically examines the Group’s risk profile, defining and proposing to the CEO the updating of the management strategies of the risk classes and reporting to the Delegated Bodies any emerging criticalities.

The Risk Management Department considers these risks in its insurance programme.

A specific climate change risk assessment model was developed in 2021.

Among the effects of climate change there are extremes of atmospheric phenomena (acute physical risks) that can generate events such as droughts and fires, heat waves, cyclones, landslides, water bombs, floods; these events produce impacts on the hydrology of hydroelectric and aqueduct plants, with the related economic implications and are aspects of attention for the consequences they produce on the property assets (e.g. failures in the district heating network) and on margins (reduction due to damage to production facilities). These events also have an impact on the scheduling of the availability of thermoelectric generating units and the related scheduled maintenance.

Climate change trends lead to variations in temperature distributions (chronic physical hazards) that primarily impact the dynamics of district heating, gas, water and electricity consumption or changes in precipitation patterns with impacts on hydroelectric plants production and water resource scarcity for distribution.

Financial implications for the Group, in relation to climate change, also derive from the costs associated with the Emission Trading System and their variation depending on regulations (transition risks). Regulatory, market, technological and political developments may also produce possible risks and/or opportunities for the Group.

In the model of assessment of risks from climate change implemented by Iren Group, the analysis is based on the definition of some time horizons (2030, 2040, 2050), identified in line with the objectives of the Strategic and Sustainability Plan, and on the use of climate and socio-economic data series necessary to define scenarios of evolution of the main quantities underlying the analysis.

Climate data are based on two International Panel on Climate Change (IPCC) scenarios: CPR 2.6 and CPR 8.5 (see page 38).

The model also uses socio-economic data as inputs that are primarily based on scenarios published annually by the International Energy Agency (IEA) in the World Energy Outlook (WEO).

From a methodological point of view, the analysis carried out starts from the results of the implementation of specific models for some of the Group’s key assets, in particular those that would potentially be more exposed to risks from climate change, and which make it possible to carry out a medium- and long-term scenario analysis, quantifying the change in economic and financial variables related to the operation of the assets taken into consideration.

The first analysis concerned the association of each risk factor, identified within the scope of the Group’s Climate Change Risk Policy, with possible risks/opportunities mapped for the various Group businesses. KPIs, obtained from the simulations, were then analysed, providing a quantification of the impact of risk within the simulation model.

Application of the model has shown that actions introduced as part of the 2030 Business Plan, which also outlines asset-specific investments, have a mitigating effect on the impacts of climate change. Mitigation actions of a strategic nature, linked to investments, are flanked by others of an operational and insurance nature.

The table below provides a summary of the analysis carried out and shows the main risks identified for each business area with the relative quantification and the most significant mitigation actions implemented or planned by 2030.

CLIMATE RISK

Time Horizon: S=short-term, M=medium-term, L=long-term
2 The rating scale refers to the impact on EBITDA expected in 2030 (downside for risks and upside for opportunities): <1%, medium between 1 and 5%, >5%
3 It was decided not to provide a quantification as the valuation refers to a limited number of assets, as indicated below: • Hydroelectric plants: analysed assets representing 25% of hydroelectric production, so the impact was low in both scenarios; • Aqueducts: analysed assets representing 54% of the volumes of drinking water injected into the network, so the impact was low in the 4°C scenario and medium in the 1.5°C scenario; • Wastewater treatment plants: analysed assets representing 8% of treated water volumes, so the impact was low in both scenarios. As part of future developments, it is planned to significantly extend the scope of analysis. Similarly, the effectiveness of the mitigation strategy will be made explicit once the assessment has achieved relevant coverage.
4 The quantification is based on the impact of natural catastrophic events on the Group’s main assets.